Home Sales in February

Sales of existing homes increased unexpectedly in February after six months of decline, but private economists said it was too soon to say the prolonged slide in housing is coming to an end.

The National Association of Realtors said sales of existing homes rose by 2.9 percent in February to a seasonally adjusted annual rate of 5.03 million units. It marked the first sales increase since last July, but even with the gain sales were still 23.8 percent below where they were a year ago.

Prices continued to slide. The median sales price for single-family homes and condominiums dropped to $195,900, a fall of 8.2 percent from a year ago, the biggest slide in the current housing slump. The median price for just single-family homes was down 8.7 percent from a year ago, the biggest decline in four decades.

Wall Street, which had been expecting another decline in home sales, was encouraged by the February increase as well as improved terms for Bear Stearns stockholders in the sale of that company to JPMorgan Chase & Co. The Dow Jones industrial average rose 187.32 points Monday to close at 12,548.64.

Economists, however, said they still believed any sustained housing rebound was many months away.

"The hemorrhaging has stopped but the recovery will be long, slow and painful," said Bernard Baumohl, managing director of the Economic Outlook Group. "It's unlikely that we will see any sustained jump in home purchases, must less higher prices, until mid 2009 at the earliest."

Brian Bethune, an economist at Global Insight, said, "A quick bounce-back in the housing markets is simply not in the cards."

White House press secretary Dana Perino said the increase in sales and a decline in the inventory of unsold homes was encouraging but "we can't put a lot of stock in just one report."

Lawrence Yun, chief economist for the Realtors, said that some formerly hot markets in California and Florida were seeing significant price declines now as sellers are cutting prices to attract buyers.

"We are not expecting a notable gain in existing-home sales until the second half of this year," he said.

He said sales should be helped in coming months by recent moves to boost the loan limits on mortgages that can be insured by the Federal Housing Administration and purchased by Fannie Mae and Freddie Mac.

By region of the country, sales surged by 11.3 percent in the Northeast and were up 2.5 percent in the Midwest and 2.1 percent in the South. The only region of the country to see a sales decline was the West, where sales dropped by 1.1 percent.

The inventory of unsold homes dipped to 4.03 million units in February. That meant it would take 9.6 months to exhaust the supply of homes for sale at the February sales pace. That was down from January's level of 10.2 months but still about double what the months' supply had been during the peak of the housing boom.

Sales of existing homes fell by 12.8 percent in 2007, the biggest decline in 25 years, following an 8.5 percent drop in 2006. After a five-year boom, the steep downturn in housing over the past two years has been made worse by a severe credit crunch as financial institutions tightened their lending standards in reaction to multibillion-dollar losses on mortgages that have gone into default.

The steep slump in housing has raised concerns about a possible recession. Democrats are pushing for greater efforts to stem a tidal wave of mortgage foreclosures to keep more unsold homes from being dumped on an already glutted market.

Sen. Hillary Clinton, campaigning for the Democratic presidential nomination in Pennsylvania on Monday, called on President Bush to appoint an emergency working group on foreclosures to recommend new ways to confront the housing crisis.

"Over the past week, we've seen unprecedented action to maintain confidence in our credit markets and head off a crisis for Wall Street banks," Clinton said in a campaign speech. "It's now time for equally aggressive action to help families avoid foreclosure and keep communities across this country from spiraling into recession."

A Down Market Has Its Upsides for Young People

By Anya Kamenetz

Sometimes what seems like bad news can be turned into good.

All the recent talk about the faltering economy certainly seems to fall into the bad-news category. Housing prices had the biggest decline ever, the U.S. and international stock markets had some very dark days, 17,000 U.S. jobs unexpectedly "disappeared," and many experts feel that we're heading into a recession.

But there's reason for young people to look on the bright side. In fact, beginning your financial life during an economic correction or downturn can be a preferable thing in many ways. Here are a few of the positives:

1.) We won't expect to get rich quick.

Economic dramas shape an entire generation's beliefs about the nature of the economy and the risks involved. Just ask your grandmother, who experienced the Depression and is probably still saving rubber bands.

If you're in your 20s or early 30s, your living memory consists of a nearly unprecedented runup in stock market values -- the tech bubble of the 1990s. Bubbles by definition get people excited about making lots of money, fast. Thanks to the Internet, millions of people were able for the first time to pick, follow, and trade stocks for themselves. Unfortunately, the common outcome could be summed up by the title of film critic David Denby's book: "American Sucker." An affluent, well-connected New Yorker with ties to top stock analysts, Denby lost over one million dollars gambling on tech stocks.

Investors like Denby, who try to get rich quick by picking individual stocks, exemplify what is known in the investment world as "dumb money."

It's nearly impossible for you and me to beat the market consistently. And commissions, as well as trading and research costs, tend to eat up your returns if you try. It's a great lesson to learn by example -- not by experience.

You can also learn some lessons from the downturn of the housing market. In the past decade, it became much more common for first-time homebuyers to borrow big and hope to flip within a few years for huge appreciation -- 50 percent and up. But if you buy a house these days, you'd better love that city and that neighborhood, not buy more than you can afford, and be prepared to hold onto it for a long, long time.

2.) We'll get real about consumption.

Think about this: Consumer spending increased every year for the past 16 years. That's the longest buying binge Americans have ever gone on.

This spending increase was largely fueled by the runup in house prices, which allowed home-owning Americans to borrow against the cost of their homes. Consumer credit also expanded markedly over the past decade and a half.

For those of us in our 20s, this may mean that our parents borrowed against their home to send us to college or to pay for vacations or other luxuries while we were growing up. It also means that credit cards have always been there to fill the gap when we wanted a pair of shoes or a restaurant meal. Young people have been spending 16 percent more than they earn in recent years -- not a sustainable situation.

Well, now the credit market is tightening. As long as house prices are falling, not rising, home-equity loans will be harder to get. And in the general atmosphere of a recession, out-of-control spending tends to slow down as everybody tightens their belts. For example, this past holiday shopping season was the weakest in five years.

But did it really hurt your celebration with friends and family if the presents were a little less lavish?

3.) We'll buy on the cheap.

The current scary economic environment should not cause you to stuff your money under a mattress. The stock market may not be the best way to make a fast buck, but it is still the best long-term investment for your money; market returns average 7 percent to 10 percent over the long term (although your mileage may vary based on investment costs.)
And the "long term" means decades, not a few years.
Even with the recession in 2001-02, stock prices never really corrected to historical norms, which means they may still have a ways to fall. According to David Leonhardt of "The New York Times," the stock market is currently "overvalued" by 10 percent, relative to historical norms. And in a recession, the market sometimes plunges more than it should because of the mood of the investors, rather than because of underlying economic indicators.
That's bad news for people who are retiring now or in the near future. Your grandfather might have had a million dollars if he cashed out last year, and only $800,000 today. But it's good news for the average 25-year-old. You have most of your stock-buying ahead of you. You'll ideally be putting 10 percent to 15 percent of your salary each year into a retirement savings account that's invested in stocks. If stock prices go from "overvalued" to "undervalued", you're essentially buying in at a discount -- and you have plenty of time to see your investments appreciate.

As for the housing market, some are predicting prices will sink 25 percent to 30 percent in the next few years. At best, prices could remain flat while they catch up with rents. (Before the bubble, the monthly costs to rent a home were roughly comparable with the monthly costs to carry a mortgage. These days, in New York City at least, the same apartment that rents for $2,500 may sell for $650,000 -- $3,800 a month after a 10 percent down payment.)
So my advice (which I'm following myself) to would-be homebuyers is to watch and wait and keep your eye out for a bargain. Make a lowball offer and, again, you'll leave plenty of room for appreciation.

The next few years are going to be a real economic education for us all. In my next column, I'll talk about the two cardinal rules for the cautious slowdown investor: hold down costs and diversify.

Best and Worst Places to Buy a House Thursday, January 24, 2008

Whether you're looking for an investment property or a place to live, here's a look at the cities you should seek out and avoid in 2008.

The housing crunch and the excessive inventory -- exceeding 10 months on resale homes -- continues to take its toll on housing prices. But over the long term, housing is still a good investment. In fact, it's more than an investment; it's a home. Plus, you're not really saving anything by renting, as the costs of renting and owning are about equal (well, owning may be a little more). The tax benefits of home ownership far outweigh renting, too. With good housing prices in many great areas, this may indeed be the time to buy.

So now that I've convinced you this is a good time to buy a home, the next question is, Where do you buy one? No matter where you look, you should check out some basic economic fundamentals before buying. Is job growth stable in the area? Is income keeping up with inflation? Is crime above the national average? Is there a higher-than-average rate of foreclosures? These issues and others play a factor when deciding where to buy a house.

As a real estate investor and analyst, it's my job to provide buyers with qualified information on where to buy -- and where to stay away from. Here are my thoughts for 2008 based on the indicators noted above.

The Top Places to Buy

Whether you're an investor like me or you're looking to purchase that next move up, here are my picks for the best areas to buy a home:


Killeen, Round Rock, Austin, Texas: Killeen has the lowest average home price in any market in the nation while still maintaining quality. Round Rock and Austin have seen incredible job growth and very stable home prices despite the downturn nationwide. Jobs continue to grow here -- a factor for keeping inventory low and prices stable.

Mission Viejo, California: Mission Viejo has the lowest crime statistics in the nation. With no murders in 2007 and a low rate of violent crime, this is a good place to raise a family. Prices are relatively stable, and the job market in the nearby cities of Irvine and San Diego means there is consistent demand from job seekers.

Palm Beach, Florida: I'm taking a risk here because this area has been pummeled by foreclosures in 2007. But there are also a lot of boomers retiring, and Palm Beach is looking mighty attractive. If you don't like this high of a risk (which translates to great prices), check out Tampa or Clearwater in the same state

Las Vegas, Nevada: Yes, Las Vegas has been hit hard by incoming investors, who watched their home values disappear and then left those homes empty. Las Vegas comes in quite high on the national foreclosure list, almost always within the top three metro areas. But there's an upside -- a very strong job market. In 2007, Las Vegas experienced a 12 percent increase in population, partly driven by retirees looking for Sunbelt states to move to. Coupled with low prices, we could see inventories reduced here, which would also stabilize prices. Be careful what you buy, but I like it.

Places to Avoid

And now for the places you definitely want avoid


Detroit, Michigan: The job market is in chaos. People are getting laid off left and right. National statistics seem to point to a significant problem with job loss and job income not keeping up with inflation. As a result, many nice neighborhoods are now abandoned due to people leaving their homes. Inventories exceed one year (under six months is what we want to see), and the foreclosure problem hit Detroit hard. With fewer jobs to support home purchases, I don't see Detroit turning around anytime soon.

Miami, Florida: Palm Beach is different than Miami, which sits in its gorgeous aqua water with half-built and abandoned condos, a shrinking job market, a tough time getting insurance against hurricanes and a job problem. Yes, you can get a good deal, but do this only if you don't need the appreciation from the home in the next decade.

Riverside/San Bernardino, California: Even those lucky homeowners that bought before the boom are feeling it now. Riverside and San Bernardino counties in Southern California consistently lead California in foreclosures and rank in the top three metro areas nationally. The prices have plummeted, and jobs in the area are scarce. People moved there due to lack of affordability in Orange and Los Angeles counties (where their jobs were), so it's a commuter's area. Now that prices in the two counties have dropped, people can live close to their jobs. Although I grew up in Riverside County, I could never recommend it to anyone looking to buy a home.